Rice Warner’s submission to Retirement Income Review

Rice Warner’s latest report has been prepared in response to a call for submissions from the Retirement Income Review (Consultation Paper, November 2019).

Given the many strengths of the system, it does not need major reform.  However, there are areas where the system could be modified to provide more efficient and effective outcomes.  The recent Actuaries Institute Green Paper listed many of these.

The Australian superannuation system depends on the three Pillars of the Age Pension, Compulsory Superannuation and Voluntary Superannuation.  Consequently, the impact of any proposed changes will need to be considered carefully because changes in one area can impact on the others.  For example, adjusting the taper rate on the Age Pension will determine how much pension is lost from higher superannuation benefits.

When the Superannuation Guarantee (SG) is raised to 12%, for many members, some of the benefit will be offset by a reduction in Age Pension payments.  The impact is complex, and outcomes are not readily quantifiable since retirement outcomes for members vary depending on many other factors including the rate at which the member withdraws their savings during retirement.

Home ownership is important for retirees.  Apart from not needing to pay rent, homeowners hold an asset which can be used later in life to supplement income (through home equity release) or to pay for Aged Care services (through equity release, sale or rental).  Previous research prepared by Rice Warner for the Actuaries Institute shows that growing superannuation balances at retirement will be partly countered by a reduction in levels of home ownership.

We believe that enhancements need to be made in the following areas:

1. Simplification of administration and documentation to reduce costs and increase the level of community understanding and engagement.
2. Introduction of Joint Accounts for couples, or at least some form of linking of these accounts, as this would raise levels of engagement and allow funds to prepare appropriate benefit projections and improve retirement planning.
3. A review of retirement income provision to include the establishment of default products (within an overall strategy set by each fund), and the ability to move pension accounts easily from one fund to another.
4. A review of financial advice which is perceived to be expensive by members and cannot be delivered cost-effectively under current legislation.
5. A review of the role of life insurance within superannuation (especially disability benefits), recognising that, while this provides great benefits for most Australians, it clogs up the superannuation system and leads to unnecessary confrontation at the time of a claim, partly driven by the involvement of plaintiff lawyers.